Interest U/s 234A

Prepared by: CA Prakash Somani (+91 98199 17080) Please mail your queries & suggestions to p_somani@yahoo.co.in
Please enter values in Yellow cells to get the details:

Interest U/s 234A

Due date of filing the tax returns Date of actual filing

MM/DD/YYYY 3/31/2009 5/6/2010

Simple interest @ 1%

Rs.

980
13

Self assessment tax on Returned Income (U/s 140A)

Less: Advance tax Less: TDS Less: Double taxation relief Net Tax payable

15000 4000 2000 2000 7000

Interest U/s 234B & 234C

Prepared by: CA Prakash Somani (+91 98199 17080) Please mail your queries & suggestions to p_somani@yahoo.co.in Please enter values in Yellow cells to get the details:
Interest Calculation for FY. 2007-08, & 2008-09 Assessee Company Assessment Year 2009-10 Total Tax payable on Assessed Income Less : Double taxation relief Less : TDS Receiable (A - B - C) Less Advance Tax Upto 15-Jun-08 1000 1,000.00 Upto 15-Sep-08 5000 6,000.00 Upto 15-Dec-08 2000 8,000.00 Upto 15-Mar-09 8,000.00 Balance Tax Months 12 Interest of Section 234 B Interest of Section 234 C Total Interest Rate 1% Amount 22,000.00 Interest 2,640.00 2,640 985 3,625

A B C D E F G H

55,000 0 25,000 30,000

8,000 22,000

Sec 234A 234B 234C

Particulars (for delay in filing the tax return) (for shortfall in payment of advance taxes during the tax year) (for shortfall in installments of advance tax)
At this time of the year, individual assesses have been busy preparing and filing of tax returns. The significance of the due date is that after this date, the tax returns filed will be subjected to 1% penal interest under the Income Tax Act, 1961 (the Act). The charging of interest on delayed the filing of tax returns and short/delayed payment of taxes are mandatory and there are no provisions for reduction or waiver of interest by the tax department (except in a very limited circumstances, as empowered to the chief commissioner of income tax) even if the tax payer provides a reasonable cause for such defaults. This issue has been a subject matter of debate before various courts, including the Supreme Court of India, and time and again courts have held the constitutional validity of the mandatory charging of interest under sections 234A, 234B and 234C of the Act. Income tax for any previous year is chargeable to tax in the assessment following the relevant assessment year. However, it is further provided that income tax shall be deducted or paid in advance under the provisions of the Act. Therefore, the liability to pay tax for the relevant tax year either by way of deduction or as an advance tax has been enshrined in the Act itself. Broadly speaking, interest for defaults in payment of taxes is charged from the tax payers under three sections, namely 234A (for delay in filing the tax return), 234B (for shortfall in payment of advance taxes during the tax year) and 234C (for shortfall in installments of advance tax). Interest under section 234A of the Act is payable for the period starting from the due date of filing the tax returns up to the date of actual filing, calculated as simple interest at the rate of 1% per month or any part of the month. At the time of filing the tax returns, the tax payer has to compute the interest on the basis of his/her total income as disclosed in the tax returns, which later can be substituted by the tax officer with assessed income, if different from the returned income, and additional interest will be charged in the assessment order. The important thing to be noted here is that for computing the interest under this section while paying self assessment tax under section 140A of the Act, credit can be given only for payments made as an advance tax, TDS, or any double taxation relief available under the tax treaty/the Act, whereas any other tax payment cannot be taken into account. Therefore, where a tax return is filed after the due date and even if whole/part of the taxes have been paid before the due date other than by the modes as mentioned above, interest under section 234A of the Act is leviable. Interest under section 234B of the Act is charged on the shortfall in the total advance tax paid during the tax year. The interest under this section is charged at the rate of 1% per month or part of the month from April 1 of the date of payment of taxes. For computing this interest as well, the tax payer has to consider the tax payable on income as shown in the tax return and adjust taxes paid as TDS, advance tax, double taxation relief available under tax treaties/the Act. The tax officer can substitute the tax computed on finally assessed income and re-compute the interest payable under section 234B of the Act. Where a part payment of taxes has been made, any shortfall in the total tax payable and interest up to such date of

of tax returns. The

ected to 1% penal

ment of taxes are tax) even if the tax

ax department (except in

ect matter of debate

courts have held the

234B and 234C of the

g the relevant

ed or paid in advance

ax year either by way of namely 234A (for delay tax year) and 234C (for

aking, interest for

due date of filing the tax

% per month or any part

he basis of his/her total

fficer with assessed

ed in the assessment

er this section while

ly for payments made as

he Act, whereas any

he taxes have been

nder section 234A of the

nce tax paid during the

r part of the month from

x payer has to consider

DS, advance tax, double of the Act. Where a part

he tax computed on

st up to such date of